Signing a Personal Guarantee: What Every Director Should Know

If you run a limited company and you're arranging a loan, an overdraft, asset finance or a new commercial lease, there's a good chance the lender or landlord has asked you to sign a personal guarantee, and to get independent legal advice (ILA) before you do. That request can feel like one more hurdle, but it exists for a serious reason: a personal guarantee is one of the most significant documents a director can sign. This guide explains what you're taking on, how it has to be signed, why the lender insists on ILA, and what actually happens in the appointment.

How a director's personal guarantee actually works

A personal guarantee (often shortened to PG) is a legally binding promise that if your company cannot repay what it owes, you will pay personally. It deliberately steps around the main benefit of running a limited company: limited liability. Once you sign, the company's debt is no longer only the company's problem: it can become yours, payable from your own money and assets.

Guarantees appear in all sorts of business borrowing: bank loans, invoice finance, merchant cash advances, equipment leases, trade credit accounts and commercial property leases. If you're a director or shareholder of an SME, it's likely you'll be asked to sign one at some point.

How far does your liability go?

This is the question every director should be able to answer before signing, and it depends entirely on the wording of your particular guarantee. Points your solicitor will look at include:

• Capped or unlimited: some guarantees are limited to a fixed sum; others cover the full debt plus interest, charges and the lender's costs of recovery.
• "All monies" clauses: wide wording that can cover not just this loan, but everything the company owes the lender now or in the future.
• Joint and several liability: where several directors sign, the lender can usually pursue any one of you for the whole amount, not just your 'share'.
• Indemnity wording: many documents are drafted as a guarantee and an indemnity, which can keep you liable even in situations where a simple guarantee might fall away.
• Duration: a guarantee often continues until it is formally released, which may be long after the original loan was meant to end.

When can the guarantee be called on?

Typically, the lender can demand payment from you personally once the company defaults: for example, if it misses repayments, breaches a condition of the facility, or enters insolvency. In many cases the lender does not have to exhaust every remedy against the company first: a written demand to you can be enough to start the clock. If you don't pay, the lender can pursue you through the courts like any other debt, which can lead to judgments, enforcement against your assets and, ultimately, bankruptcy proceedings.

What's at risk, including your home

An unsecured personal guarantee puts your personal savings, investments and other assets on the line. If the guarantee is supported by security, such as a charge over your home, the risk is more direct still. Even without a charge, a lender enforcing a court judgment can seek a charging order over property you own. This is exactly why the law treats these documents so seriously, and why no one should sign without understanding the worst-case scenario.

Does a personal guarantee need to be witnessed, or signed in wet ink?

A guarantee can only be enforced against you if it is in writing, or evidenced in writing, and signed by you (section 4 of the Statute of Frauds 1677). It does not need a witness unless it is signed as a deed, but many lenders' guarantees are, and a deed must be signed in the presence of a witness (section 1 of the Law of Property (Miscellaneous Provisions) Act 1989). HM Land Registry's guidance is that the witness has to be physically with you when you sign, even if you both sign electronically (practice guide 8).

Whether you can sign electronically at all is the lender's choice, and some insist on a wet-ink original. In practice: the advice is given by video; if the guarantee is a deed, an independent adult witness is with you for the signing (not the other party, a relative, your broker or your solicitor); and if your lender needs a wet-ink original, you post the signed document to us and we countersign it and return it.

Leaving the company does not end the guarantee

A guarantee usually lasts until the lender formally releases you, not until you stop being involved with the company. Resigning as a director, selling your shares or falling out with your co-directors does not end it by itself, and with an 'all monies' guarantee you can stay liable for borrowing the company takes on after you have gone. Some guarantees let you give notice to stop your liability for future borrowing, but you normally remain liable for what is already owed. If you are leaving, refinancing elsewhere or selling, ask the lender for a written release, and do not treat the guarantee as over until you have it.

Buy-to-let companies and commercial leases

Two kinds of guarantee are common enough to have pages of their own. If you buy property through a limited company (an SPV), the buy-to-let lender will usually ask each director to guarantee the company's mortgage: see buy-to-let and SPV personal guarantees. If your company is taking premises, the landlord may ask you to guarantee the rent and the other lease obligations: see commercial lease personal guarantees.

Why lenders require independent legal advice

Lenders require ILA to protect the enforceability of the guarantee. English case law has long recognised that guarantees can be challenged where a signer later claims they didn't understand what they were agreeing to, or signed under pressure or undue influence, a principle developed most famously in cases involving spouses guaranteeing a partner's business debts (our guide to undue influence and the Etridge guidelines explains them). Independent advice from a solicitor who acts only for you, followed by a signed certificate, gives the lender confidence that you entered the guarantee with your eyes open. It also genuinely protects you: it's a structured opportunity to understand the risk before you're committed.

What the ILA appointment covers

At ILA Hub the appointment is a private video call with Sarah Allen, a solicitor, available Monday to Friday, 9am to 7pm, anywhere in the UK. Your ID is checked online first. The advice is given by video, and if your lender needs a wet-ink original, you post the signed document to us and we countersign it and return it. During the call the solicitor will:

• Explain what the guarantee document actually says: the extent and duration of your liability in plain English.
• Walk through when and how the lender could call on it, and what that would mean for your personal assets.
• Confirm you're signing freely, without pressure from the lender, your co-directors or anyone else.
• Answer your questions before you commit.

Afterwards, your certificate of independent legal advice is emailed the same working day, prepared to satisfy standard lender requirements, and if your lender has its own certificate form, we complete that instead. Our page on the independent legal advice certificate explains what the certificate confirms.

How quickly can it be arranged?

Fees are fixed and per person: Standard £150, with an appointment from two days ahead; Fast Track £250, with an appointment the next day if you book before 6pm; or Priority Same-Day £350, for the earliest available appointment, including today. Whichever you choose, the certificate is emailed the same working day as your appointment: the fee only affects how soon the appointment itself takes place. Full details are on our pricing page, our guide to what independent legal advice costs explains what the fee includes, and you can see the whole process step by step on how it works.

Ready to book your personal guarantee appointment?

Each director signing a guarantee needs their own advice and their own certificate, so the fee is per person. If several of you are signing, add everyone to one booking and the appointments run back to back, so nobody is held up. Our page on independent legal advice for a personal guarantee sets out what the appointment covers, or book your personal guarantee appointment online in a couple of minutes.